Cyprus strives to keep control of Aphrodite field

The government and Chevron have extended their negotiations to chart a course forward for the field, write Nader Itayim and Antonio Peciccia

Progress is being made on a revised development plan for Cyprus' 118bn m³ Aphrodite gas field, after the Cypriot government rejected a previous version of the plan that would have essentially handed control of the field to Egypt, energy minister George Papanastasiou tells Argus.

There has been "some progress" during talks between the government and Aphrodite's operator, Chevron, over the field's development and production plan, Papanastasiou said on the sidelines of the Adipec conference in Abu Dhabi earlier this month. In light of the progress made, the parties have pushed back the original timeline for the negotiations by 30 days, and they are now scheduled to be concluded by 5 November, Papanastasiou says, adding that he is "optimistic" about the outcome. Alongside Chevron, the field's shareholders include Shell and Israeli firm NewMed Energy.

According to Papanastasiou, at the core of the negotiations is Chevron's decision to remove from the plan a floating production unit (FPU) that was meant to be built within the area of the reservoir. Instead, Chevron proposed connecting Aphrodite through a sub-sea pipeline to an existing processing and production facility in Egypt — although not the Idku liquefaction terminal, as the 2019 plan specified. Removing the FPU from the plan means control of the field "is no longer in Cyprus or the exclusive zone", Papanastasiou says. "It's in Egypt."

Cyprus and Egypt have been working on a plan to link the Aphrodite field to Egypt's existing liquefaction facilities for several years. But negotiations had stumbled on the issue of resource allocation between the Egyptian domestic market and LNG exports, stemming from concerns that Egypt might prioritise the domestic market over LNG exports — as it did in the wake of the 2011 revolution, eventually leading to the country halting exports altogether and turning into an LNG importer for much of last decade. The issue may have become an even stickier point in recent years as Egypt's supply surplus for exports has been shrinking, and the country is able to export LNG only during periods of lower domestic demand in the winter.

But reverting — at least partially — to the 2019 development plan also poses challenges, particularly related to the area's lack of infrastructure and the difficulty in underpinning the necessary investments. Papanastasiou describes the absence of infrastructure as "the fundamental difficulty". "I don't know how they plan to manage that one," he admits.

Building the necessary infrastructure is "the most important thing" for Cyprus, not just because of Aphrodite but also to serve a number of more recent discoveries in the country's exclusive economic zone (EEZ). These finds — the Cronos, Calypso, Zeus and Glafcos fields, which Papanastasiou calls the "southwest cluster" — have also made little progress. To bring all these reserves to the market, one option is to tie them to infrastructure already in the area, in Egypt or Israel. The other option is to build separate infrastructure, but "you have to justify that investment, and this is the difficulty we are facing at the moment", Papanastasiou says. All of these fields have yet to submit formal development plans, although Italian energy firm Eni is considering linking Cronos to a tie-back to Egypt, he says.

Regional co-operation

The infrastructure issue highlighted by Papanastasiou betrays a lack of clarity on the target market for the Cyprus discoveries.

The option to link the fields to infrastructure in Egypt would benefit from its large domestic market, as well as existing liquefaction facilities. Instead, the alternative mooted by Papanastasiou is to co-operate on infrastructure development with Israel, which is looking for "an alternative export route other than Egypt" for its offshore gas resources, Papanastasiou says. Israel only exports gas by pipeline to Egypt and Jordan at present, although it has been considering plans to install a floating liquefaction unit that would give it access to the international LNG market.

Nicosia has made a proposal that includes a pipeline to connect Cyprus with Israel's gas grid, the minister says. This would enable Cyprus to import Israeli gas for use in power generation.

But investing in such a project would not be justified if the plan targeted only Cyprus' small and undeveloped domestic market. "You need an export side of this arrangement in order to get some LNG", which would require the construction of either a floating liquefaction unit or a modular LNG export plant that could be expanded as more gas becomes available, the minister says. But "at the end of the day, you need an owner of gas", a company that could be the investor and owner of gas at the same time, Papanastasiou says, adding that this could be "any player in the EEZ of Israel or Cyprus".

Still awaiting first gas

The island currently has no access to natural gas supplies and relies almost entirely on fuel oil and diesel for power generation, at least until a planned LNG import terminal in Vasilikos is commissioned next year.

The terminal, which will use the 136,600m³ Etyfa Prometheas as a floating storage and regasification unit (FSRU), is expected to be commissioned in July 2024 and deliver first gas in July-August, Papanastasiou says. This goal is slightly later than the energy ministry's previous target of commissioning in the first half of next year. The project started construction in September 2020 and has already suffered numerous delays.

Papanastasiou suggested that the FSRU, which is expected to be delivered this month, could "be time-chartered to another member state… until the terminal in Vasilikos is completed". Abu Dhabi's state-controlled Adnoc has expressed interest in sub-chartering the vessel.

The project is part of Cyprus' wider push to revamp its electricity system in order to reduce power prices. The terminal would aid conventional power generation by feeding the adjacent 868MW Vasilikos plant. Two more independent power producers are expected to "come into play at about the same time [as Vasilikos]", Papanastasiou says.

And the government plans to upgrade the electricity grid and invest in power storage to help the country cope with a surplus of renewable generation in shoulder seasons, the minister says. At present, the country produces more from renewables than the grid can handle, and the plants do not have batteries in which to store power, Papanastasiou says. In autumn and in spring, when power demand is lower because of reduced cooling and heating needs, "there will be a rejection of renewable energy, which is not right". Additionally, in conventional power generation, "there is a minimum production — 250MW — that you cannot go below", he says.

Cyprus aims to boost the share of renewables in its generation mix to 40pc by 2030, from close to 32pc at present, Papanastasiou says, emphasising that this will only heighten the need for grid improvements to handle the increase in renewables. The government is holding a public consultation on its plans to build power storage capacity and is considering whether to invest directly in the plan. "We expect some interest from the private sector in order to install some systems, but we are also considering doing something that is state owned, because this will be far quicker," he says.